There’s a type of currency that businesses never physically touch. It’s virtual but spendable. It’s made of digital 1s and 0s instead of copper or paper. It’s cryptocurrency, and it’s growing in popularity. This increasing popularity means that if cryptocurrency isn’t part of your investment plans today, it very well may be in the future. Without knowing what it is and how it works, it is extremely difficult to make the correct decisions when investing in or utilizing cryptocurrency. As a Cryptocurrency CPA firm, we can assist in answering some of the more difficult questions that continue to come up for investors and business owners.
So What Is Cryptocurrency?
The short answer is that cryptocurrencies are decentralized digital assets that use computer-generated cryptography as an encryption mechanism for security. Cryptocurrencies are auto-generated, which means computing processes create them inside a blockchain (more on blockchains later). They’re designed to be private, portable, and secure. Consumers typically manage their cryptocurrencies inside cryptocurrency wallets that:
- Store the keys required to “decrypt” the currency and allow it to be used
- Enable conversion of real dollars to cryptocurrencies
- Enable the transfer of funds between markets
- Enable transactions between the currency holder and participating vendors
Since Bitcoin’s inception, the cryptocurrency market has expanded rapidly. There are currently more than 6,000 cryptocurrencies being mined and transacted, making the market hard to navigate. This is where the right tax, accounting, or investment professional can make an enormous difference.
How Do People Use Cryptocurrency?
People use cryptocurrency primarily for three reasons:
- They’re Transacting Business: While it’s difficult to make straight-to-vendor cryptocurrency transactions, a growing number of platforms are enabling businesses to take cryptocurrency.
- They’re Investing Money: Cryptocurrency has created a huge alternative investment market for people looking to grow their money.
- They’re Raising Money: The ability to raise funds via an initial coin offering (ICO) is attractive to businesses looking to generate capital for a product or service.
What Are The Obstacles To Mass Cryptocurrency Adoption?
Criminal association and fear of fraud, mostly due to cryptocurrency’s popularity on the dark web, make mainstream users wary. There have also been numerous instances of blockchain fraud. Common frauds include:
- Ponzi schemes
- Fake exchanges that purport to let people invest in funds
- Fake currencies that are hard for consumers to distinguish from real cryptocurrencies
All the options and complexity simply overwhelm users with choice and make the market seem less tangible, causing people to hesitate to adopt cryptocurrency for use or investment. Light regulation doesn’t help, especially as cryptocurrencies are designed to be global and decentralized, escaping any single regulator’s reach. Along with the fact that compared to fiat currency, cryptocurrency volatility can be dramatic. Investors can see huge gains or losses across a period of just a few days—meaning there is significant risk along with the potential great reward.
Cryptocurrency CPA Firm – Conclusion
Investors looking to build out their cryptocurrency portfolio need to start by getting educated in the space. This is the critical first step to equipping yourself with the knowledge and skills you’ll need to take advantage of the opportunity while keeping an eye on the potential risks. Luckily, increased resources are coming online for consumers to get informed, and the volume of information available continues to increase over time.
Cryptocurrency is here to stay for the foreseeable future, and we will have the knowledge to answer the tough financial questions and the expertise to tackle any new challenges it sends our way. It is important to remember that with the lack of regulation in the industry, it is critical to research the services you are utilizing before providing payment or banking information.
As a Cryptocurrency CPA firm, we are well equipped to answer the difficult questions surrounding the Crypto craze.
If you have any questions, feel free to contact us!